Hedge Funders Think About Donald Trump a Lot Less than He Thinks About Them

Donald Trump loves a foil. Whether he’s taking on a news anchor or an anchor baby or a prisoner of war, his campaign has been a several-month-long reminder that he does not demure from casting the first stone in the name of appealing to the populous. And over the last month and a half leading up to the official release of his tax plan on Monday, he’s hurled that stone a lot closer to home, toward Wall Street.

Trump has increasingly taken on hedge funders, and the way they’re taxed. The Trump refrain has been that hedge-fund managers need to pay more in taxes because, as he says, they are “getting away with murder.”

What he’s talking about is a tax rule that allows hedge-fund and private-equity managers to call their earnings investment gains rather than income. This means they are then taxed at a lower rate—the capital gains tax rate of 20 percent, compared to the top income tax bracket of 39.6 percent (though Trump's plan would lower the top rate to 25 percent and the corporate tax rate to 15 percent, so perhaps wealthy people won't suffer too much, after all). In a press conference announcing the plan on Monday, Trump reiterated that he would do away with this so-called “carried interested” loophole.

“We reduced and eliminated some business loopholes, many of them, actually,” he said. “There will be people in the very upper echelons that won’t be thrilled with this.”

This has been a common refrain of his every time he's spoken about taxes over the last couple of months.

“I would let people making hundreds of millions of dollars-a-year pay some tax, because right now they are paying very little tax and I think it's outrageous,” Trump told Bloomberg in August. He continued that it’s “ridiculous” that the middle class is getting clobbered while the “hedge-fund guys” he knows pay almost nothing.

A few days earlier, he took on hedge funders on CBS’s Face the Nation, saying, “hedge-fund guys didn't build this country. These are guys that shift paper around and they get lucky.”

The mud slinging continued last week in a town hall at University of South Carolina, where Trump made it known that he thinks hedge funders will be none too happy about his proposal. “Those guys will not exactly love me,” he said.

But hedge funders who spoke with VF.com, under the condition of anonymity so they could speak frankly, aren’t exactly shaking in their John Lobb boots. Mostly because they don’t think Trump is getting anywhere near 1600 Pennsylvania Avenue.

One manager of a hedge fund that focuses on mortgage loans said he doesn’t expect Trump to pull through with the nomination, and even if he did, he wouldn’t really stop hedge funders from finding ways to hang onto their money. He brought up a time when then Mayor Michael Bloomberg reminded New Yorkers that people vote with their feet.

“You’re talking about the smartest people in business who know how to manipulate money,” he said. “If you tell them you’re closing loopholes, they’ll take the money someplace else, offshore.”

Another manger, who’s founded two funds and ran them both, called Trump a “buffoon,” and said casting blame on hedge funders is misplaced. He said he and many of his contemporaries agree with Trump, that the tax code should change. In fact, he said that the general consensus is that every year the rules don’t get re-written is another good year, another lucky one.

“If the tax code is written such that you’re entitled to be taxed at that rate, it’s not shame on me, it’s shame at the politicians. How many people are gong to turn away a tax-free gift?” he said.

Plus, he said, it’s harder to find a target easier than hedge funds.

“They need someone to make evil. They need someone to get jazzed about. To a certain extent, it’s not a hedge-fund thing; it’s a private-equity thing,” he said. “But they’ve never heard of private equity. They’ve heard of hedge funds.”

Last week, Clifford Asness, the managing and founding principal of AQR Capital Management, echoed this in a column for City Journal.

“Trump hopes that by taking on his own friends—the ‘hedge-fund guys’—he will be seen as courageous by the angry subset of the Republican primary electorate that has fueled his rise,” he wrote. “If Trump supporters really love anti-hedge-fund rhetoric, they should consider supporting Bernie Sanders.”

“The image of Mr. Trump with his finger on the button blows my mind,” Blankfein said at the same breakfast in Manhattan earlier this month.

Despite all of the shade and closing the carried interest loophole, we can almost feel the exuberance emanating from Wall Street about the proposed corporate tax rate and overall tax cut. As one manager put it, every time we underestimate him, we are wrong.